Mergers & Acquisitions Ireland
Companies have been merging and acquiring each other for 200 years and do so in order to increase revenues, market share and ultimately profit. Unfortunately many mergers/acquisitions have ended in failure. Two that come to mind are Daimler's purchase of Chrysler (what were they thinking) and Time-Warner buying AOL. This article will focus on the common causes for failure and how failure can be avoided.
What Happens in Mergers Acquirer doesn't take time to understand the business
The first issue is that acquiring companies, (let's call them the Acquirer) and the acquired company (called the Acquiree), don't fully understand what they are buying; a failure to look under the hood if you will. The mergers & acquisitions are completed at the senior executive level without a thorough due diligence of all aspects of the business including IT systems, supply chain, Customer service and existing contracts, etc. For example, a telecommunications operator may acquire another telecommunications operator in order to gain additional Customers (revenue) and on the surface there appears to be potential synergies between the companies. However, the reason the firm is being sold may be the firm is not profitable. A lack of money creates cost cutting measures including not investing in a new infrastructure and the associated systems, which is the lifeblood of any telecommunications operator. In reality, what is being acquired along with customers is an outdated network that must be updated just to keep the existing customers. Since merger agreements are executed at the executive level there is no examination as to the time and cost to rebuild the outdated network.
By not understanding how the acquired company operates, ill-informed decisions are made. In the case of a telecom company not understanding the processes and IT systems of the Acquiree, the Acquirer doesn't know the time frames for turning up existing services, much less new services. New services may require new equipment, which needs to be standardized in the IT systems. Not understanding the process for doing so creates delays. The Acquirer may have a simple process for standardizing new equipment for purchase and deployment, especially if the Acquirer is smaller than the acquired company. For example, there may be only four systems for ordering, purchasing, inventory, deploying, provisioning, managing, billing and maintaining the telecom network. However, the acquired telecom company, especially if is larger, may have 50 systems that do this work. It is vitally important understand the Acquiree's business model. Failing to do so puts the new enterprise at risk.
Eliminate Redundant Employees and Systems
"Synergies" has been key term in merger/acquisitions; the ability to Create a larger enterprise that can provide more services at allower cost through economies of scale. Therefore, one of the immediate actions of the new enterprise is to cut costs. If a thorough examination had been made of the Acquiree, it would be understood that it not only does the Acquiree's telecom network needs to be updated but also the various IT systems of both companies must be ran in parallel until the systems of both companies can be migrated to a uniformed platform. This means 1) there is no cost savings while the parallel systems are running 2) money will spent to migrate to a single system for each of the areas. Any cost savings from eliminating redundant systems or redundant staff is many months into the future. By eliminating personnel and IT systems, and doing so without proper planning, gaps in delivering existing services are created. Deadlines are missed and customers leave.
Big Hairy Audacious Goals
If this wasn't enough to put the new company at risk of failure, the Acquirer increases the risk exponentially by creating in the words of Jim Collins, a management expert, Big Hairy Audacious Goals (BHAG), for the newly merged company. Commands come from the top to roll out new services right away, without regard to how it will be accomplished. No due diligence was conducted to see if either organization had the processes and personnel in place to deliver these services. No, the new CEO deemed the new services/products necessary and somehow it was going to be delivered, no one was going to tell the CEO it couldn't be done, akin to the "Emperor has no clothes on".
Now additional services will need to be delivered without any knowledge of how the existing services are delivered at the Acquiree. As it was indicated earlier, systems and personnel at the Acquiree have been eliminated, leaving gaps in the ability of the company to deliver existing services and now new services are added, accompanied by an aggressive rollout schedule. The new services are not rolled out on time, causing executive management to find a scapegoat(s) to fire for not meeting the schedule. When the schedules are missed micromanagement by the executive follows along with an even more aggressive schedule to make up for lost time, ensuring that the new schedule is missed by an even wider margin.
At this point employees are disillusioned with the company and seek employment elsewhere. Unfortunately for the company, the best employees have the best opportunities and are the first to leave causing schedules to be missed, etc. The company may realize at this point it needs to take a different tack to correct their mistakes, but in most cases it is a downward spiral from which the company does not recover.
Why Does this Occur?
This happens over and over again in business and with it happening so often why don't companies learn from other's mistakes? The short answer is hubris. First, the Acquirer often feels that is knows best how to run Acquiree's business and the arrogance is even stronger if both companies are in the same industry. After all, the Acquirer has done quite well; well enough to buy the Acquiree. The Acquirer knows exactly what it takes to manage the business in their industry.